FINRA has proposed several amendments to the public communications rules[1] that are designed to ease some of the regulatory burdens associated with these rules, while not sacrificing underlying investor protections.  The proposals emerged from a reassessment FINRA conducted of the effectiveness and efficiency of the public communications rules.  FINRA published the results of the study in December 2014 and set forth the proposed amendments in Regulatory Notice 15-16, published in May 2015. FINRA is accepting comments on the proposals until July 2, 2015.

  • New FINRA Firms. Under the proposed amendments, for the first year of FINRA membership, new member firms will not be required to pre-file retail communications. Instead, post first-use filings can be made within ten business days and will only be required for a generally accessible website and changes to such website material (as amended, Rule 2210(c)(1)(A)). The commentary notes that such websites will be reviewed as part of the new firm application process.
  • Investment Company Semi-Annual /Annual Reports. These shareholder reports will not be required to be filed with FINRA under the proposed amendments, if filed with the SEC or a state (as amended, Rule 2210(c)(7)(F)). This is consistent with the filing requirements related to prospectuses, fund profiles, offering circulars and similar documents under the current rule.
  • Rankings or Comparisons in Investment Company Retail Communications. Firms will no longer be required to file the ranking or comparisons used in Investment Company retail communications with FINRA (Rule 2210(c)(3)(A)), but such material must be retained as records (Rule 2210(b)(4)(A)(vi)). However, if the ranking or comparison is not generally published or is the creation of the investment company, the current pre-filing requirement (10 business days prior to first use) is still applicable and the firm must include a copy of the data on which the ranking or comparison is based (Rule 2210(c)(2)(A)).
  • Generic Investment Company Information. Under the proposed amendments, retail communications that promote or recommend a specific investment company or family of companies must be filed within ten days of first use (R. 2210(c)(3)(A)), but generic investment company information will not be required to be filed at all.
  • Use of Investment Analysis Tools. Interactive investment analysis tools (that produce simulated outcome scenarios) may now be used if the firm provides FINRA access to the tool within 10 business days of first use of the tool. But a Firm will no longer be required to file a template for a written report produced by, or retail communications concerning, the tool, as previously required under Rule 2214.
  • Non-Predictive Narratives. Under current rules, previously filed template retail communications may be updated with statistical or non-narrative information without refiling. FINRA proposes to expand this exclusion to now permit firms to update non-predictive narrative descriptions of market events during the period covered and factual descriptions of portfolio changes without refiling (Rule 2210(c)(7)(B)).
  • Bond Mutual Fund Volatility Ratings. Under the proposed amendments to Rule 2213, firms will be able to distribute such ratings in a retail communication without a prospectus (or supplemental sales literature). The only additional disclosure that will be required is a link to a website for, or a website including, the criteria and methodologies used to determine the rating. The following disclosures will no longer be required in the communication:
    • Any explanation for a ratings change (from the most recent prior rating);
    • A description of the ratings criteria and methodologies used to determine the rating;
    • A statement that not all bond funds will be required to have volatility ratings; and
    • A statement that the portfolio may have changed since the rating date.

[1] Specifically, FINRA Rule 2210 (“Communications with the Public”), FINRA Rule 2213 (“Requirements for the Use of Bond Mutual Fund Volatility Ratings”), and FINRA Rule 2214 (“Requirements for the Use of Investment Analysis Tools”).

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FINRA estimates that these amendments will result in a reduction of 21,800 filings per year or $4,000,000.00 per year for all firms. FINRA has requested comments on all aspects of the proposed amendments, including, specifically, on the following issues:

  • Besides the reduced filing costs, are there any other sources of impact, including direct or indirect costs or benefits?
  • Are there any anticipated changes in communications or delivery and if so, how?
  • Are there alternative approaches to satisfy the policy goals?
  • Will firms continue to voluntarily file exempt communications, and if so, how much and why?

If you would like to provide FINRA with comments on these proposals Lewitas Hyman PC will be pleased to assist you in crafting such response, and further, to forward them to FINRA under our letterhead. Please contact Lewitas Hyman PC at (312) 291-4600 to discuss.

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